The fiscal consequences of over-development

Return to First Principles

Posted
Wednesday, March 6, 2013 1:00 pm

Steve Frias

Short-sightedness is a trait of human nature. Unfortunately, this trait has proven to be prevalent among public officials, especially when it comes to the long-term fiscal impact of land development planning. Currently before the Cranston City Council is a proposal to change the zoning on Phenix Avenue in western Cranston, which would allow an apartment complex of 192 units to be built in an area currently zoned for single-family homes. The developer has claimed that the proposed Lodges at Phenix Glen will not cost the city of Cranston any money. The developer claims it will produce new property tax revenues. Specifically, the developer has produced a fiscal impact study, which showed that this apartment complex would produce a net property tax revenue gain of over $117,639 per year. However, these claims are based on assumptions that are unrealistic. Furthermore, Cranston’s history has shown the detrimental impact that residential over-development has had on property taxpayers.

The developer for Lodges at Phenix Glen is forecasting a property tax revenue gain for the city of Cranston based on the assumption that only 10 students will live in this 192-unit apartment complex. This assumption is based on another assumption that this apartment complex will only be for “upscale renters.” Although the developer states that he plans on charging a monthly rent of $2,000, there is no guarantee that this apartment complex will only be for “upscale renters.” There is no way to zone exclusively for “upscale” apartment complexes. Furthermore, it seems unlikely in this economy that there would be many people interested in paying $2,000 a month for rent to live in Cranston. Once the apartment complex is built, economic conditions may lead to the apartment complex renting out to non-upscale families. For example, in downtown Providence, the same developer who is promoting Lodges at Phenix Glen developed the Westin luxury condominium complexes. However, once these condominiums could not get filled, the developer began renting units to college students, to the dismay of the original condominium owners. Even if the developer could somehow legally commit to only renting to “upscale” individuals, there is no assurance that this commitment could survive in the event of a bankruptcy proceeding.

Instead of assuming only 10 students, there could be as many as over 50 students residing in the Lodges at Phenix Glen apartment complex. A few years ago, the National Multi Housing Council, a trade association representing apartment owners and developers, produced an analysis that showed that typically 17 percent of occupied apartments have one or more school-age children, and that these apartment households with children have about 1.6 children. If all 192 apartment units were filled, this would mean not 10 students but 52 students would be living at the Lodges at Phenix Glen. This is quite possible because the apartment complex will have 108 units with at least two bedrooms. Even if the number of 52 students is too high, it will only take slightly less than 25 students in the apartment complex for the Lodges at Phenix Glen development to end up costing Cranston property taxpayers more money than it generates.

Even if the developer’s assumption that only 10 students will end up living in the 192-unit Lodges at Phenix Glen apartment complex is accurate, there is no guarantee that the apartment complex will produce a net property tax revenue gain. The developer has stated that the Lodges at Phenix Glen will not require the city of Cranston to build a new fire station or hire more police officers to service Lodges at Phenix Glen. However, in the developer’s fiscal impact study, it states that there would be “small incremental demands for services” such as “police” for “traffic and accident calls” and “emergency services.” If the Phenix Lodge development is used to justify a staffing increase of just one more police officer and one more firefighter, the entire net property tax revenue gain forecasted to be $100,000 per year would be wiped out.

Cranston has been at the forefront of real estate development controversy for generations. Since the days of trolleys, over a century ago, real estate developers have looked to Cranston as a place to develop more land. In 1910, real estate developers and their political allies worked together to change Cranston’s form of government and eliminate town financial meetings so as to make it easier to raise taxes to pay for more government services in order to attract more homebuyers from Providence. However, Cranston public officials soon learned that the cost of providing more city services, in particular for schools, exceeded the property tax revenues generated from extensive residential development. Residential real estate development booms soon led to increases in government spending to pay for more government services, especially for public education. The result was deficit spending, bigger debt burdens and higher taxes.

A major reason for Cranston’s current high property tax rate is because of excessive residential development over the decades. The higher the population density of a community, the more likely the tax burden will be high as well. The more people that are crowded into an area, the greater the demand for government services will probably be. Over 10 years ago, a study by Grow Smart Rhode Island showed that Rhode Island’s urban core and urban ring communities, which have high to medium population density, had an average effective property tax rate almost 70 percent higher than the average effective tax rate for Rhode Island’s suburban and rural communities, which have low to very low population density. Cranston is now an urban ring community; it does not need to turn into an urban core community with more apartment complexes and higher property tax rates.

Cranston’s development policies over the decades have violated the basic principle that land development planning should avoid increasing the tax burden on property owners. In a community as developed as Cranston now is, the focus should be on commercial and industrial development or in maintaining open space. Commercial and industrial development and open space generate more in property tax revenues than it costs the government to service. Specifically, more development is needed in areas that are already zoned for commercial and industrial development such as the Elmwood/Wellington industrial corridor, the Trolley Barn industrial area or the Cranston Print Works area. If developers can keep looking toward Cranston’s undeveloped land, they will be less likely to invest in these older developed sections of Cranston. The result will be a mixture of urban decay, suburban sprawl and an expanding government providing more services at higher tax levels.

Back in 1975, there was an attempt to change the zoning at Wilbur and Natick Avenues in western Cranston to allow for apartment complexes to be built. But after residents organized in opposition, the proposal died. More than three decades later, here we are again with another proposed zoning change to allow apartment complexes to be built in western Cranston. One can only hope for the sake of all Cranston taxpayers that history repeats itself and this proposal fails as well.